How forced CPF savings help PAP to generate ‘high’ growth rates

When first introduced under British colonial rule in 1955, the CPF required total monthly contributions of 10 percent of an employee’s wages from both employer and employee, with each paying $5 per cent.

By 1971 the contribution rate had risen to 20 percent, then 30 percent in 1974; it finally hit 50 percent in 1985. But with the 1985/6 recession, the employers’ contribution was cut to 10 percent to help business recover.

Since then employer/employee contributions have fluctuated. By July 2007, the total contribution was 34.5 percent, with employers contributing 14.5 percent and employees 20 percent.

Being a compulsory scheme, the CPF has been a form of state-imposed forced savings. CPF contributions have been a major source of national development capital and have also done much to increase national savings dramatically.

Singapore’s savings soared from negative 2.4 percent of GDP in 1960, to 15.7 percent of GDP in 1966, to 41.6 percent by 1985, to 51.5 percent by 2000.

Such stupendous savings rates had given Singapore savings uf US$25,614 a head by 2000, the highest per capita savings by far in the world. This was almost double its nearest rival, Hong Kong, whose per-capita savings were US$13,748. By comparison, Switzerland’s were US$5,189, Norway’s US$5,100 and Taiwan’s US$4,827.

The preceding measures, especially the open-door policy towards foreign capital and the expansion of the CPF scheme, did much to generate high growth rates.